Question

You purchased 100 shares of IBM common stock on margin at $70 per share. Assume the initial margin is 50%, and the maintenance margin is 30%. Below what stock price level would you get a margin call?

Answer 1

$50

Step-by-step explanation:

The computation of the stock price level is shown below:

Maintenance margin = Number of shares purchased × price - loan amount ÷ Number of shares purchased × price

30% = 100 shares × price - $3,500 ÷ 100 shares × price

30% × 100 shares × price = 100 shares × price - $3,500

30 × price = 100 shares × price - $3,500

After solving this, the price would be $50

And, the loan amount equal to

= Number of shares purchased × per share price × initial margin

= 100 shares × $70 × 50%

= $3,500